Hidden Taxes To Impact Real Estate Businesses
Among the many types of inflation battering are many forms of taxes. Some of these new taxes and tax hikes have been highly publicized. Others have been snuck through in other bills and legislation.
You don’t want to end up with any more big surprises from the IRS or other taxing authorities at tax time in the new year. So, what do you need to know? How might you be able to find a better way to cleanly and legally avoid over taxation on your real estate business?
Disclaimer: This is purely for informational purposes, and should not be deemed as tax advice.
New Taxes For Real Estate Businesses
As a business owner you should already be aware that many taxes are going up. Potentially including income tax rates and property taxes. Depending on where you are headquartered and do business.
The budget reconciliation bill passed last year also established a new minimum tax for corporations.
However, Forbes has discovered another tax hidden in that bill which impacts small businesses and their workers, and there could be more.
The Hidden Retirement Tax
Hidden in the budget reconciliation bill is a new retirement plan tax discovered by two Forbes contributors.
Beginning in 2023 the ruling forces businesses with at least 5 employees to provide and automatically enroll employees in a retirement plan (IRA). 6% of their pay will be automatically rolled into this plan. Which will automatically increase to 10% of pay.
These funds must go into specifically mandated and managed plans.
The real catch that could trip up many real estate business owners is that this was written into law as a tax. So like Obamacare, if businesses don’t have this in place, they will be taxed $10 per day, per employee.
For those with 10 employees, that’s an extra $3,000 per month in taxes. Or $36,000 per year.
What To Do About It
The most obvious fix might be to comply with this mandate, and simply give all of your employees a 10% plus pay raise to account for the funds that they will be missing from their paycheck each week.
Other options include optimizing your team. You could combine roles, and get down to four employees to avoid this tax. Such as having your copywriter also handle your SEO, PR, and other marketing tasks.
The other option is to stick to remote and independent contractors only. Though you may need to reestablish and incorporate your business out of areas like California which are striving to classify all workers as employees.
You can simplify your business, by focusing on wholesaling houses instead of buy and hold, and in turn reducing the amount of employees you need.
Invest profits for more tax deductions, such as with cost segregation, and participating in building Airbnb units managed by partners.
If you are stuck with some properties, you could donate them for a tax break, like Jeff Bezos' ex-wife who just donated $55M in real estate.
Revisit your business structure. Is a S Corp, LLC, or trusts best for you and your taxes?
Above all, get a great CPA and accounting firm who can help you legally minimize taxes, and maximize your net gains.
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